Pressure from ACT Chief Minister Andrew Barr to force petrol prices below $1 a litre could send Canberra’s independent service station owners with locked-in fuel contracts out of business.
Mr Barr has warned of punitive action under the Fair Trading Act unless all Canberra fuel retailers drop their prices below $1 a litre by Monday.
The Australian Convenience and Petroleum Marketers Association, which represents fuel retailers across Australia, said Mr Barr’s demand didn’t take into account that small, independently-owned service station operators have locked-in supply contracts with oil companies like Caltex and BP, but had higher costs.
The association’s Mark McKenzie acknowledged that while the international price of fuel had fallen to its lowest since 2004 because of the significantly reduced demand brought about by the coronavirus pandemic, fixed costs for retailers had remained the same.
“Prices have come down enormously across the board but the majors [fuel companies suppliers] which dominate the Canberra retail market have different operating costs and scales which can be amortised across dozens of sites; the independently owned and operated sites don’t have that same luxury,” he said.
“Mr Barr’s beef might be with the pricing strategies of the majors [fuel companies] but by pursuing this course, he would end up forcing the small independents out of business.
“And if those independent operators decide to get out, it’s most likely to be the majors who will take those sites over. That’s not good for market competition and, I suspect, not what Mr Barr is seeking to achieve.”
Nine of the 59 service stations across Canberra are independently owned and operated, although to the consumer they are branded the same as the corporately owned company-owned, company operated (COCO) sites.
Mr Barr says government intervention is driving Canberra prices down already and has nominated the national average petrol price, issued weekly in a summary report which includes metropolitan and regional markets, as the benchmark which would be applied in the ACT.
He said that the summary “covers every possible circumstance of selling fuel and delivers a national average [price]”. The national average last week issued by the Australian Institute of Petroleum was 98.3 per cents per litre, down 2.3 cents from the previous week
“We are not seeking to set the price down to a single decimal point for every single outlet, we are looking for a Canberra-wide average [price] which is consistent with the the national average [price],” Mr Barr said.
“If it starts moving out of kilter with that, the fuel companies can expect [government] intervention.”
The Canberra Times has spoken to several independents who fear that “going public” on their plight would make them a target for ACT government reprisal.
They say their operating model versus those of the COCO sites are vastly different and they buy wholesale from the Sydney terminals, with no corporate subsidies or pricing support.
They say their retail margin also has to absorb higher operating costs in the ACT. One independent service station owner-operator who operates one retail site in the ACT and a larger one in Queanbeyan, both with supply contracts from the same oil company, says he pays four times the rates in the ACT as he does in NSW.
“But that seems to be a point of discussion which Mr Barr chooses to ignore,” he said.
Retail fuel demand has also fallen by about one-quarter because fewer people are driving, applying a further squeeze to the independents’ profitability.
An ACT Legislative Assembly inquiry into the issue found last year that the local market was characterised by a lack of independent retailers, higher business costs, and a lack of price awareness among motorists.
One service station owner said his pricing was “at the mercy” of what was set by his supplier at the terminal gate in Sydney.
“I live in Canberra, operate a small business here selling fuel, and I am being treated like an offshoot of a multi-national because I share their branding,” he said.
An interesting sidelight to the fuel pricing discussion was raised this week by former ACT Liberal Bill Stefaniak, who has now formed his own party and is standing as an independent in the October election.
He believes that the loss of bulk fuel storage capacity in Canberra, with the fuel once delivered by rail and stored in Fyshwick by the major oil companies, has removed a price and fuel security “buffer” from the regional supply chain.
Federal Energy Minister Angus Taylor recently announced that Australia would be buying $94 million in fuel to bolster its depleted national security reserves while global prices are low.
“The Australian government has finally woken up to the fact that we need to ensure our fuel security and rebuild our storage capacity,” Mr Stefaniak said.
“Canberra could once again be a regional storage hub for fuel thus creating local jobs, giving us fuel security and some price security as well.”
Extracted from The Canberra Times